United Arab Emirates has recently introduced a brand-new corporate tax system, which began effective on June 1st, 2023. This has significant consequences for investors, especially the ones who are investing in real estate and investing money. In this blog, we will explain the corporate tax system and its implications for foreign investment that are based in Dubai. 

Historical Context 

Prior to the introduction of corporate income tax Dubai profit prior to the introduction the UAE enjoyed a tax-friendly atmosphere with a minimal corporate income tax, which was imposed by the US government on businesses. This attracted an increasing number of foreign investors who thought of the UAE to be a great location to invest in property because of its expanding economy, an environment that is conducive to business and its excellent quality of living. 

Corporate Tax Structure 

Corporate tax Dubai regime has been designed to ensure transparency of and accountability for corporate tax and compliance. Its tax rates are fixed at 9% for earnings of more than the amount of AED375,000. The rate is competitive globally and will match the tax rates of the UAE with international standards. It is important to take proper corporate tax advice, and there are several corporate tax advisors in Dubai who are providing such services, ebs Chartered Accountants being the best among all.  

Impact on Real Estate Investment 

Real estate investment is a significant business within Dubai and the introduction of corporation taxation has raised questions about the potential tax liability for UAE corporation taxes. In the past, investors could organize their purchases of real estate by joining corporate entities that comprised those local free zone offshore corporations that were owned by offshore corporations from abroad. However, this arrangement is now subject to UAE corporate tax, regardless of whether the property is one held by family members. 

To reduce the burden and reduce the risk, businesses that have property might consider altering their structure of ownership. One choice is to transfer ownership of properties within the corporate structure to the shareholders as individuals. This change in ownership may help reduce the tax burden that is associated with UAE corporate tax as the tax burden shifts from the corporation on to shareholders. In addition to this, the UAE does not impose individual income tax, making the UAE a wonderful feature for shareholders. 

Investment Funds and Exemptions 

Funds for investment, which include Real Estate Investment Trusts (REITs) are under the contemporary tax regime for corporate entities. However, they can be exempt from corporate taxes if they meet specific requirements. These include: 

• Regulation Oversight: The fund or its manager is under the control of a competent authority in the UAE or an international authority of competent recognized for its reason stated in Article 10 of the CT Law. 

• Stock Exchange Listing: The main interest of the investors of an investment fund are to be traded via the stock exchange set up within the UAE that is licensed and controlled by the UAE or another stock exchange that isn’t within the UAE which is similar in terms of high quality. 

• Principal Goal: The main goal that an investment company must not be to reduce corporate tax. 

• Business Activities: An investment fund needs the ability to conduct Investment Business activities, which involves issuing interest to investors to raise funds. It can also involve the pooling of funds from investors, or creating joint ownership in management, selling investments and transferring them. Other business activities must be considered secondary or incidental. 

• Ownership Structure: The share of ownership in the fund that is owned by a single investor and its Related Parties can’t exceed 30 or 50 % in the event of the number of shareholders is 10 or greater. 

• Investment Manager: The investment fund should be overseen or managed by an Investment Manager, who has at least three specialists in investment. 

• Investment Control: Investors shouldn’t have control over the day-to-day management of the investments fund. 

Real Estate Investment Trusts (REITs) 

REITs are also eligible for exemption from corporate tax, provided they meet certain conditions. These include: 

• Realty Property: The value of real estate assets that is not land, and under the control or supervision of the REIT should not be less than AED 100,000,000. 

• Stock Exchange Listing: At 20% or more of the capital REIT’s value must be traded through a Recognized Stock Exchange or completely owned by two or greater organizations. 

• The Actual Estate Asset Percentage: REIT must have an asset ratio at or above 70 percent. That is, at or above 70% for the applicable Gregorian calendar year, or 12-month period in which financial statements are issued. 

Conclusion 

The taxation of corporate rate in UAE has profound impacts for investors, especially those in investment and property funds. While taxes are competitive globally, the new system requires careful analysis and adherence to specific regulations too. This will warrant compliance and benefit maximize savings in tax. Investors should consider altering their ownership structures and seek out expert advice to be aware of the evolving legal structure. 

FAQs  

What is the current corporate tax rate in the UAE? 

The current corporate tax rate in the UAE is 9% on taxable profits above AED375,000. This rate is highly competitive globally and has been implemented to ensure the country remains aligned with international standards and requirements. 

Are investment and real estate funds exempt from corporate tax? 

Investment funds and real estate investment trusts (REITs) can qualify for exemption from corporate tax if they meet specific conditions. These conditions include being subject to regulatory oversight, having a significant portion of their assets invested in real estate, and not being controlled by a single investor or related parties. 

How does the UAE’s corporate tax regime affect foreign investment? 

The introduction of corporate tax in the UAE has brought increased transparency and accountability, making it more attractive to foreign investors. The country’s competitive tax rate and extensive network of double taxation agreements ensure that businesses can make investments with greater confidence and build trust in the UAE’s business environment.